Mich. Dermatologist Gets 10.5 Years in Fraud Case

Federal prosecutors cite five-year pattern of fraud totaling an estimated $1.9 million

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CEO SUMMARY: In a federal case involving billing improprieties and insurance fraud, a federal judge sentenced Michigan dermatologist Robert W. Stokes, M.D., to 126 months in prison and ordered him to pay $178,100 in fines and assessments, with the amount of restitution yet to be determined. Stokes was tried in federal court last April facing 73 counts, including 38 counts of fraud relating to marking up anatomic pathology services that he did not perform, but which he presumably purchased from a third party.

“DOCTOR SENTENCED to hard time for health care fraud scheme.” That was the headline on the day in December when the U.S. Attorney’s office announced the sentence of dermatologist Robert W. Stokes, M.D., of Grand Rapids, Michigan, in a federal case of healthcare billing fraud.

This sentence is the latest development in the Stokes case, a federal case first revealed to the pathology and laboratory industry last year by THE DARK REPORT. This case is notable because the federal attorney had indicted Stokes in April 2006 on 73 counts of violating federal health laws. What made this significant for the laboratory industry (and for physicians who mark up purchased pathology and laboratory tests when billing private payers) was that 38 of these counts involved fraud in how Stokes billed for lab tests in claims submitted to Blue Cross Blue Shield of Michigan, Aetna, and TriCare. (See TDR, August 27, 2007.)

This is an extraordinary event in pathology and laboratory compliance. First, the U.S. Attorney from the Western District of Michigan was both willing to prosecute a physician for fraudulently billing purchased anatomic pathology services. Second, the U.S. Attorney suc- cessfully convinced a grand jury to return a bill of indictment on 31 counts of laboratory test billing fraud. Both of these developments should not go unnoticed by pathology and laboratory providers, their physician customers in states that allow physicians to mark up purchased pathology and laboratory services when billing private payers, and the attorneys who advise them.

Convicted On 31 Counts

Following a weeklong trial, on April 27, 2007, Stokes was convicted on 31 counts, each count involving fraud in how Stokes upcoded dermatology procedures and filled claims for his professional services. Through communications with the U.S. Attorney’s office and conversations with several individuals who had involvement in the Stokes case, THE DARK REPORT learned what happened to the 38 counts of lab billing fraud.

Early in the trial, the federal attorney altered his original strategy. He recognized that he had a compelling and relatively easy case to convince the jury of Stokes’ guilt in the counts relating to upcoding and false claims for dermatology procedures. That was not the situation with the counts involving Stoke’s alleged fraudulent billing of insurers for anatomic pathology services that he did not perform. The federal attorney decided that presenting the complex details of laboratory billing fraud was likely to distract—if not outright confuse—the jury.

No Jury Ruling On Lab Counts

For that reason, the federal attorney chose not to pursue the 38 counts of anatomic pathology billing fraud at the trial. Thus, the jury never heard the evidence relating to these indictments nor did it rule on Stokes’ guilt or innocence relating to those 38 counts of pathology billing fraud.

“As I understand the facts, the U.S. attorney’s strategy at trial makes sense,” said Jane Pine Wood, attorney at McDonald Hopkins, a law firm based in Cleveland, Ohio. “On the counts of upcoding and wrongful coding for dermatology services, he probably believed that he had a clear, easy-to-understand case with compelling evidence. Proof of that is the jury’s decision to convict Stokes on 31 of those 35 counts.

“However, because of the complexities of billing for purchased pathology services, the lack of prior case law on billing for such services, and the need to present lots of detailed procedural evidence to convince the jury to convict Stokes on the pathology billing fraud charges, it should be no surprise that the federal attorney decided to not pursue those specific 38 counts at trial,” explained Wood. “He went after the low-hanging fruit and let go of the pathology billing fraud counts so as not to confuse or distract the jury.

“Since the federal attorney persuaded the jury to convict Stokes on 31 of 37 counts of fraudulent upcoding and filling fraudulent claims, I would say the federal attorney made the right decision,” she continued. “Not only did he convince the jury to convict Stokes, but the federal judge was also convinced and sentenced Stokes to an unusually stiff sentence of more than 10 years in jail! That’s another sign that Stokes’ actions were egregious.”

Stokes was sentenced on December 27, 2007, to 126 months (10.5 years) in prison and ordered to pay $175,000 in fines and pay $3,100 in special assessments. In addi- tion, he was ordered to serve 36 months of supervised release upon completion of his prison term. The amount of restitution is to be determined later this spring and will be based on an estimated $1.9 million that was fraudulently paid to Stokes.

After initially indicating THE DARK REPORT that it would make an official available to discuss the specifics of the Stokes case involving the 38 counts of billing fraud for the purchased pathology services, once Stokes was sentenced, the U.S. Attorney’s Office has yet to make good on that promise. That means THE DARK REPORT has not been able to get more specifics about how Stokes violated the billing statue involving marking up laboratory tests, what evidence was used to obtain the federal indictments, and what legal principles supported this aspect of the Stokes case.

Nonetheless, the Stokes case should become part of the legal compliance program for all pathology and laboratory providers and all physicians marking up purchased pathology and laboratory services. It shows that federal prosecutors will bring a criminal case against a physician for inappropriately marking up such purchased services.

Indicted For Lab Billing Fraud

That’s precisely what happened to Stokes in this case. The prosecutor, U.S. Attorney Charles R. Gross of the U.S. Attorney’s office for the Western District of Michigan, in Grand Rapids, filed 38 charges of lab billing fraud along with 35 other charges of billing fraud. Stokes was indicted in April 2006 on a total of 73 charges of various types of billing fraud. The evidence against Stokes was voluminous and the case showed that the dermatologist’s behavior was egregious. Along with billing fraud and performing procedures not medically necessary, federal prosecutors showed that Stokes did not sterilize his surgical instruments and regularly reused sutures and other single-use disposable medical equipment.

Although the federal attorneys who brought this case to trial have yet to provide a more detailed explanation about how and why Stokes’ actions violated federal laws on filing false claims for purchased pathology services and marking up for pathology services he did not perform, there are still important compliance lessons to be drawn from this case.

“None of this should distract from the primary lesson here,” warned Wood. “Physicians involved in billing for purchased pathology and laboratory services want to avoid the indictment itself! This case is a warning to physicians and laboratories that U.S. attorneys may consider billing for purchased services as a violation of federal or state law. This may signal a more strict interpretation of existing rules for billing for purchased services.”

Wood also calls attention to another important point. “These indictments were under United States Code 1347, which is for obtaining money under false pretenses,” she noted. “USC 1347 is the general health care fraud statute that the government uses in such cases. This statute includes violations involving upcoding, miscoding, and filing claims for services not rendered.

“It is disappointing that the federal attorney is not willing to talk to the pathology and laboratory providers and physicians about the pathology billing elements in this case,” added Wood. “However, that does not alter the essential message, that a federal prosecutor was willing to indict a physician for marking up purchased services. And, it is important to note that these counts were not dismissed. To the contrary, it’s just that they were not pursued.”

Stokes Regularly Billed Services Not Performed

FEDERAL PROSECUTORS BUILT THEIR CASE against dermatologist Robert W. Stokes, M.D., by demonstrating a pattern of fraud over five years. The case is important to pathologists, lab directors, and physicians who mark up laboratory tests they bill to payers because it shows that a federal prosecutor is willing to indict a physician for fraudulently marking up and billing for tests he/she did not perform.

Court records show that Stokes executed his scheme by billing Blue Cross Blue Shield of Michigan (BCBSM), Aetna, and Tricare for laboratory services that he did not render. “In order to receive reimbursement for a service, a participating provider, such as Stokes, must certify that he personally performed the service and that the service was performed at this office,” the records show. “Stokes routinely billed BCBSM, Aetna, and Tricare for laboratory services that were rendered by independent outside laboratory facilities and then billed to Stokes. Moreover, Stokes not only billed for the services that he did not perform, but he inflated the cost of the services by adding a ‘mark up’ to his costs.”

However, because the U.S. Attorney’s office that prosecuted the Stokes case has declined to discuss the indictment counts dealing with fraudulent billing for laboratory services, THE DARK REPORT is unable to provide further understanding and guidance to the laboratory industry. Thus, a very important opportunity to further improve compliance with federal healthcare laws has been lost to the laboratory testing profession.

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